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While exchange-traded funds come in a plethora of flavors, one area that is generally under-represented is private equity. In fact, until last week, the only veritable name in the space was the seven-year-old PowerShares Global Listed Private Equity Portfolio (NYSE:PSP).

Now, though, a second fund — the ProShares Global Listed Private Equity ETF (NYSE:PEX) — has joined the ranks. And unsurprisingly, the two have a lot in common beyond their similar-sounding names (something ProShares probably did intentionally to gain instant recognition).

PSP vs. PEX

More obviously, they both invest in both private equity firms and business development companies like Ares Capital (NASDAQ:ARCC) and Apollo Investment (NASDAQ:AINV) by replicating the performance of a global listed private equity index. On top of that, their annual fees are in the same ballpark. The veteran fund charges 0.71% annually while the newcomer is charging 11 basis points less at 0.6%.*

Of course, there also are several notable differences.

The new ProShares uses the LPX Direct Listed Private Equity Index, to start. LPX Group is based in Europe, specializes in private equity research and publishes a number of different private equity indices. This LPX index will invest in up to 30 private equity companies.

PowerShares, on the other hand, uses the Red Rocks Global Listed Private Equity Index as its target. Red Rocks is the first U.S. firm to develop packaged Listed Private Equity investment products. The Red Rocks index can invest in as many as 75 private equity companies — PSP currently has 66 holdings, with Onex (PINK:ONEXF) the top holding at just under 5%.

Of course, the fact that ProShares is so new also changes things. Because it is just getting its fund off the ground, PEX only has a few million dollars under its belt. In contrast, PowerShares’ fund has $380 million in total assets and a pretty good track record.

Also, PSP currently delivers a 12-month yield of 2.6%, while ProShares has yet to make a distribution.

It’s tough to make a one-or-the-other choice because of these differences … but what about the choice to invest in private equity at all?

The Peak of Popularity

On the one hand, private equity is on a tear. The recent Heinz (NYSE:HNZ) deal with 3G Capital and Berkshire Hathaway (NYSE:BRK.A, BRK.B) suggests investment firms are coming up with creative partnerships to swing big deals.

Heck, just consider that PSP is up 12% year-to-date, beating the broader S&P 500. And while it’s not available in the U.S., the iShares U.K. division also offers the S&P Listed Private Equity ETF (LON:IPRV) … and it’s up 26% year-to-date. As investment firms continue to invest their dry powder, investors are keen to get in on the action.

For the average investor, though, these funds still aren’t the best choice. While it’s tempting to own companies that invest in the private markets — effectively expanding your investment exposure — there’s no need to do so when the overall market gets you all the gains you need.

The other thing to remember is that these companies invest over three to five years … and sometimes longer. Chasing today’s performance could end up hurting you tomorrow. Plus, a significant portion of the funds are invested in business development companies. While they’ve had a good run the last five years, they are due for a cooldown. It’s very possible you’re buying in at the very worst time.

Remember, the only thing worse than missing out on five years of positive returns is buying in at the beginning of five years of negative returns. Reversion to the mean is lurking here.

Bottom Line

If you’re thinking of putting this type of ETF in your portfolio, don’t. There’s too much risk involved. However, if you have a little bit of play money put aside you can afford to lose and enjoy, you might be willing to take a flyer … and quite possibly get a decent long-term return on your investment.

But remember, private equity is the flavor of the moment … and tastes always change.

* Per SEC requirements, the numbers read 2.32% for PowerShares and 2.54% for ProShares in most places. However, if you subtract “acquired fund fees and expenses” and any fee waivers, you arrive at the lower amount.

As of this writing, Will Ashworth did not hold a position in any of thee aforementioned securities.